How to Get Small Business Loans Without Collateral | 2020 Update


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How to Get Small Business Loans Without Collateral

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10 min read. – by Joe Camberato

This post was originally published in 2018, and was updated in march 2022 to provide even more information about how to get small business loans without collateral.

If you need funding for your business, then it’s natural to wonder how you can go about getting the best deal. Among other questions, you might be wondering how you can get small business loans without collateral.

Like many business owners, you may be facing a relatively short-term expense such as emergency facility repairs or a higher-than-expected tax bill. Or, you may be focused on a longer-term investment, such as expanding, upgrading, purchasing new equipment, and so on.

In these common situations, getting a small business loan without collateral can be a great option to keep your operation strong and successful.

how to get a loan without collateral and unsecured small business loans

Collateral Business Loans 101
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How Traditional Secured Loans Work

Before explaining how you can get an unsecured small business loan, it’s important to understand what a secured loan is.

A traditional secured loan gives the lender to have a sense of security when choosing to lend to a business. If the borrower defaults on the loan, then the lender can get paid on the loan by seizing the collateral that secured the loan.

For example, mortgages are secured loans—the home itself acts as collateral. In the event you default on mortgage payments, the lender (or bank) would take the home. 

Having collateral in the mix gives the lender a cushion of comfort when it comes to taking on risk.  

What Collateral is Needed for a Small Business Loan?

For most small business loans, some sort of collateral is needed to be leveraged in order to get approved.

This collateral often takes the form of liquid assets: that is, assets that can be easily converted into cash in the case of foreclosure.

The easier the collateral is to convert, the more “liquid” it is considered, and the less risk is taken by lenders. This gives you a better chance to obtain high-qualify business financing with better terms.

If you don’t wish to leverage your personal or business assets, there are plenty of great unsecured financing options that do not require collatera

Examples of Liquid Assets Used as Collateral for Small Business Loans:

  • Commercial Real Estate
  • Business Equipment
  • Inventory and Supplies
  • Invoices and Customer Payments

Although the secured business loans obtained by leveraging such assets are generally considered to be better offers with more agreeable interest rates and terms by small business owners, there are plenty of unsecured business loans with terms that are just as beneficial, and do not require any sort of collateral.

Unsecured financing is virtually exclusive to alternative business financing companies like National.

Can You Get SBA Loans Without Collateral?

There are some SBA loan programs that you can qualify for without collateral. However, this can vary on a lender-by-lender basis. Because SBA loans are backed by the federal government, but distributed by individual lenders, requirements can vary.

Some SBA loan programs will require collateral, while others may not.

This does not, however, make SBA loans a bad choice by any means.
If you have the 2+ years in business, $100K in annual gross sales, and 695+ FICO to get an SBA loan, then you should. The low prime rates, long terms and large amounts offered through SBA financing may be the best choice for you.

The question then becomes where to go for an SBA loan. Alternative financing companies provide SBA loans with expedited processing that gets business owners funded in a fraction of the time taken by banks. You’ll also have to submit a fraction of the paperwork, so there has never been a better time to apply for SBA financing.

3 Most Common Reasons for Needing Unsecured Financing

Well, why do some business owners seek out unsecured financing? There are a few reasons that this structure could be beneficial:

  1. You may not want to pledge your personal and/or business assets.
  2. You may not have enough personal and/or business assets to meet your lender’s collateral requirements.
  3. You’re aware that lenders who demand collateral often undervalue assets in order to further reduce their risk exposure. For example, the industrial equipment that is worth $75,000 is likely to be valued at $50,000 by a collateral-demanding lender.

If any of the above applies to you, then you should cross “conventional bank loans” off your list since banks always require collateral in order to get a loan.

Along with near flawless credit and 24+ months of business credit history, these requirements can be difficult to meet.

How to Get a Small Business Loan Without Leveraging Collateral

The first thing you want to do is look for the word “unsecured.” If this word appears before the name of any business loan, that means the lender does not require any collateral of any kind to be leveraged on your end.

This means that if you should default on your unsecured business loan, none of your personal or business assets will be at risk.

Your options for unsecured business loans include:

The type of loan that works best for you can vary based on your needs. However, there are also “SECURED” business loans that don’t require your own assets be leveraged, but someone else’s. 

In many cases, these options may be just as beneficial, as your company really isn’t losing anything that isn’t already yours. Some examples of these include:

Fortunately, you can pursue an option that has benefited numerous small and mid-sized businesses across the country: apply for a business loan without collateral from an alternative business financing company like National Business Capital to get significantly easier approval.

Alternative financing companies are known for finding the best loan deals on the market whether you have impaired credit, a past-discharged bankruptcy, or no collateral at all!

A Higher Credit Score Can Help (But Isn’t Necessary)

The stronger your business is financially, the better your options will be when it comes to obtaining financing. Naturally, a higher credit score will expand your options in terms of financing programs. However, challenged credit doesn’t necessarily mean that you’re out of options altogether. You may still be able to obtain financing without collateral.

To lenders, your credit score is an indication of how your business has responded to financial obligations in the past. A high credit score means that you’ve only taken on debt that you can pay down. A lower credit score, on the other hand, means that you may have had some financial difficulties in the past.

Traditional financial institutions (like banks) generally won’t offer loan programs without collateral, but with higher credit standards, this may not be an option. Alternative lenders (also called online lenders), on the other hand, often offer programs for business owners with bad credit.

If you plan to apply for financing in the near future, you can take steps to boost your credit, like:

  • Paying all bills in a timely manner
  • Paying down existing debts
  • Not opening new business credit cards

It’s also crucial that you not apply for financing until you need it. Some lenders will run a hard credit check, which may show up on your credit history, and temporarily lower your score.

Securing a Loan Vs. Providing a Personal Guarantee

Even when you can qualify for an unsecured financing program, you’ll usually have to provide a personal guarantee. While both ensure that lenders are paid what they’re owed, personal guarantees put less of a strain on your business.

Instead of placing assets on the line, a personal guarantee holds you personally accountable in the event your business defaults. So, if your business closes and the entity no longer exists, you, as the individual who guaranteed the loan, would be personally liable to pay.

Generally, though, this structure is favorable to putting up collateral. When you put your home up to grow your business, you’re risking both your personal and business finances. Limiting the number of assets on the line helps ensure that the risk is minimal.

In other situations, lenders may put a UCC lien on your business. While the business owner won’t put up collateral at the time of the agreement, the lender is permitted to pursue collateral.

How and Why Do Some Alternative Financing Companies Not Require Collateral?

Part of what National Business Capital stands for is transparency (as our testimonials from satisfied clients verify!).

Therefore, in light of the above you may be asking a sensible and important question: why do we offer loans without collateral in the first place?

The answer is simple: we don’t believe — and our stability, growth and success confirms — that collateral is necessary to make a funding relationship work.

Our team is focused on what a business is doing today and where it’s headed tomorrow. Collateral isn’t part of the picture, because frankly, it’s irrelevant.

So Why Do Banks Insist On Needing Collateral?

The first reason is simply because they can! Banks make more than enough profit from their other lines of business, such as commercial and residential mortgages, to offset the drop in applications caused by their collateral requirement.

The second reason is that underwriting a small business loan costs banks about as much as underwriting a loan for a large enterprise.

As such, demanding collateral is a way for banks to claim they offer small business loans, but make it exceedingly difficult to obtain one.

More About Unsecured Small Business Loans

Getting a small business loan without collateral is easier and faster than you think, and keeps your personal and businesses assets where they belong: safely and securely with you. 

Our team will provide you with transparent, objective information so that you can make an informed decision.

We partner with clients to help them advance on their business journey and if you decide to make us part of your success, we’d be honored to help you, too.

How to Apply for Business Loans without Collateral

To learn more, contact our team of Business Financing Advisors today at (877) 482-3008 for a free consultation, or get started right away by filling out our 1-minute application online.

Minutes after completing it, we’ll help you find the best possible financing option in the global marketplace that’s right for your business. 

Learn More About Unsecured Funding in Your Free eBook

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Also, be sure to check out our FREE eBook on how to get business funding when banks say no:

How To Get A Business Loan Without Collateral – The Complete Guide

Last Updated on September 18, 2020

National Business Capital helps entrepreneurs secure quick and fair financing to save time and cultivate sustainable growth.

Our stress-free online platform is designed for simplicity and speed, helping business owners go from application to approval in a matter of hours. And while we remain a leader in the Fintech industry, our clients agree it’s our personalized service and award-winning team that sets us apart.

From SBA loans to lines of credit, to equipment financing, and more, business owners can access all the different financing programs available to them in one place. Through our streamlined process, we have helped clients secure over $2 billion in financing since 2007, and, more importantly, we’ve helped entrepreneurs save a tremendous amount of time and grow faster.

About the Author, Joe Camberato

Joseph Camberato, CEO of National Business Capital, developed a passion for business at a young age. Joe started his company in 2007 in his spare bedroom and has grown to secure over $1 Billion dollars in financing for small business owners nationwide. National’s team has an amazing culture and has been name the #1 Top Workplace on Long Island 3 years in a row and counting. Joe is a trusted financial expert who’s published more than 2,000 articles in the last 3 years. His articles have generated over 5 million page views and has been featured on blogs such as Google News, Yahoo, CNBC, Forbes Magazine, etc. His passion has also inspired him to build the "GrowByJoe” YouTube channel where he shares his insights into small business trends and tips for growth. Joe also holds a seat on Forbes Finance Council and is an active member of the Young Presidents' Organization (YPO), a global leadership community.

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.